iPhone 6 Apple Pay = Death of the Credit Card?

This past weekend, Apple set a new sales record and sold over 10 million units of the new iPhone 6. The industry is abuzz with its new features and an option to get your iPhone in a bigger size (the iPhone 6 Plus). However, one new feature is generating the most talk and critics, retailers and the industry are anxious to see if this new trend will take off. I’m talking about the iPhone Apple Pay feature. A feature that, if enabled, will allow iPhone 6 owners to pay for purchases without their credit card. Studies have shown that a person’s cell phone is always close to their being. So instead of carrying a cell phone AND a credit card. Now you can just carry your cell phone. Cool, huh? But how does it work? Is it really safe? Can someone hack your credit card information? Where can I use it? Well, let’s take a look…

WHAT IS IT?

Mobile payments is the ability to pay for products and services via a cell phone. Mobile payments are nothing new. Google Wallet, Square Wallet and Visa’s V.me are different types of mobile payment options that have all been on the scene for a few years with moderate success. However, the Apple Pay feature, that will be available starting October 2014, is a new take on mobile payments.

Chances are, you are already familiar with iTunes and have bought a song, app or TV show there. But, in order to do that, you need to have a credit card tied to your Apple account. Because of iTunes, Apple has approximately 800 million accounts with a credit card connected to it. Now with the Apple Pay feature, Apple is giving this huge customer base the opportunity to make mobile purchases at participating retailers with an iPhone 6. Now all those 800 million account owners don’t have iPhones or the new iPhone 6. But I’m sure that Apple is banking on the Apple Pay feature revolutionizing the mobile payment industry. And yes, a whole gang of retailers, such as McDonalds, Disney, Nike, Macy’s, Subway, Sephora and others are jumping on the bandwagon to accommodate customers who want to pay for their products via the iPhone 6.

HOW DOES IT WORK?

If you want to pay for something, just tap or wave your iPhone 6 near the store terminal with your finger on the Touch ID. That’s it! It’s kinda like Exxon Speedpass where you just wave it in front of the gas pump to make your payment each time you fill up your gas tank. It’s sorta the same idea. There is no app needed and you don’t need to wake the display in order for this to work. However, you must enable this feature and it is not available on older iPhone models.

The Lock
In order to understand how this works, I want you to think about opening a door that is locked. You need a key and lock for the door to open. Each iPhone 6 is assigned a Unique Device Account (UDA) number. An ID number that is specific and unique to each iPhone 6. This number does not change. No two iPhone 6’s will share the same UDA. Think of this as your lock.

The Key
Then, each purchase you make generates a Transaction Specific Dynamic Security code. This is a 16-digit code that is unique to each purchase you make. And each Transaction Specific Dynamic Security code expires after each transaction. So, if you make 2 separate purchases at Nike, your iPhone 6 will generate 2 distinct Transaction Specific Dynamic Security codes to complete the transaction. Think of this as your key.

The Door
Also, the Apple Pay feature has an extra layer of security because no purchase is complete without your fingerprint using the Touch ID feature. Think of this as the door. You cannot “open the door” or complete the purchase if your fingerprint does not match. Therefore, in order to complete a purchase, your UDA, fingerprint and Transaction Specific Dynamic Security code must all match.

But the real question everyone wants to know is how safe is the Apple Pay feature.

IS IT SAFE?

Can a cashier steal my credit card number?

From a human contact standpoint, the purchase is secure because you never give your name, credit card number and security code to the cashier. There is no physical transfer of information because you don’t use your actual credit card to make a purchase. It’s truly brilliant. It really is. Your credit card number is not used to make the purchase. Someone can’t steal your UDA or Transaction Specific Dynamic Security code and use them to buy shoes at zappos.com because it isn’t a credit card number.

It’s also worth mentioning that Apple does not store your credit card information on its servers. Hence, there is no danger or your information being stolen or hacked from the iCloud or in a massive security breach like what happened to Target and Home Depot.

What if someone steals my iPhone 6?

You may be worried that someone can make purchases if they steal your cell phone. Not so. That’s where your fingerprint comes in. Sure someone can try to make a purchase with your phone if they steal it. Unfortunately, their fingerprint won’t match yours and the transaction won’t go through. Do you feel better about using the Apple Pay feature now?

WILL YOU USE IT?

You get the feeling that Apple is on its way to reshaping the financially industry and how people pay, like it reshaped the music industry. If this takes off – and it early indications appear that it is – this could be the death of the physical credit card.

Let me ask you the question, would you or do you use this feature if you have an iPhone 6? Why or why not? Given the recent data breaches of Target and Home Depot, do you think that your personal financial information is secure?